We are now halfway through 2014 and looking forward to positive economic growth after a relatively slow first quarter.
RBC Economics notes that while the long, harsh winter slowed production and hinged the movement of goods, companies in Canada and the United States are expected to make up the loss of production, and real GDP is likely to post solid growth this quarter. Looking forward, RBC Economics emphasizes that with growing global and U.S. import demand and the weakened Canadian dollar, the export sector should help play a larger role in supporting economic growth; the Canadian economy is forecasted to grow by 2.4% in 2014 and 2.7% in 2015. That being said, the Canadian dollar has increased slightly this quarter, but RBC continues to forecast the Canadian dollar to reach USD $0.85 by the end of 2015.
Looking at the commercial real estate activity across the country, in Q2 2014, the weighted average vacancy rates for office and industrial were 7.78% and 4.17%, respectively. Both asset classes experienced positive absorption: approximately 7,700 square feet for office and 4,440,000 square feet for industrial. One topic of interest over the past six months has been the introduction of new office space in most major markets. In Vancouver, Calgary, Edmonton and Toronto, there are approximately 18 million square feet of new A or AAA office space under construction. Continue to stay cautiously optimistic since the tenant demand for this space will undoubtedly impact the ability of lower A and B class office buildings to retain tenants.
Keep your eyes on:
- The automobile industry: Scotiabank Economics reported that car and truck sales have grown 2% YoY, setting an all-time record for the month of June. Purchases are estimated at a total annualized 1.87 million units, third-highest under an all-time high of 1.89 million set in May.
- Northern Gateway and Keystone XL Pipeline: The Federal Government recently approved the $7.9 billion Northern Gateway pipeline construction, contingent that Enbridge meet all 209 conditions set by the National Energy Board. That being said, the Province of British Columbia’s Liberal government, led by Christy Clark, still needs to give the green light for the various permits required to move forward. Keep your eye on this project as its progress, or lack thereof, will not only impact commercial real estate and the overall economy in British Columbia, but in Alberta as well.
- Growth in the Atlantic: After a full year of production, the Deep Panuke offshore gas field is a major player in the economic growth of Halifax and Nova Scotia. Additionally, two major petroleum companies, Shell Canada and BP Canada, are planning to spend a combined $2 billion in new offshore exploration. On top of this, the $25 billion ship building contract with the Royal Canadian Navy will support growth in the province over the next several years, as well as encourage major spin-offs in Halifax, such as the $300 million investment on the Halifax Shipyard to retrofit facilities and increase business investment.
Conference Board of Canada (2014) Economic Insights into 13 Canadian Metropolitan Economies
RBC Economics (2014) Economic and Financial Market Outlook – June 2014
Scotia Bank (2014) Global Economics: Auto News Flash – June 2014
Scotia Bank (2014) Global Economics: Provincial Trends: Nova Scotia – New Sources of Growth – May 2014